Cairn Oil & Gas, a unit of Vedanta Ltd, wants licence for its prolific Rajasthan block to be extended for the life of the oilfield as it will help it in formulating investment plans to exploit all of the resources, its new CEO Nick Walker said. The company in October last year got a 10-year extension of the licence for the Rajasthan oil block till May 14, 2030
However, this period is not enough to bring out and produce all of the oil and gas reserves. The company is carrying out the world’s largest Alkaline Surfactant Polymer (ASP) project wherein output is being sought to be increased by injecting polymer in the fields.
Walker said the results of the ASP will be visible only after 2030 and so the extension of the production sharing contract (PSC) for the life of the field and not be limited by an artificial timeline.”We are very pleased that we got the PSC extensions but actually most of the recovery from the ASP comes after 2030,” he said. “So we really need a PSC extension for the life of the field so that we can invest for the life of the field.”
Worldover, licences are given for the life of the field to help companies design investment plans that could maximise production and bring out every extractable molecule of hydrocarbon. The initial licence to explore and produce oil and gas from the Barmer block expired on May 14, 2020. The government had agreed to a 10-year extension but it wanted a higher share of oil and gas from the block as well as settlement of Rs 5,651 crore dispute over cost recovery for the same.
Vedanta did not agree to either of the demands and challenged them in court. Against this backdrop, the company was given monthly or bi-monthly extensions before signing the 10-year PSC extension deal on October 27, 2022 pending the settlement of the dispute.
The company’s challenge to the government’s demand for a higher profit share for the extension is pending before the Supreme Court.Cairn Oil & Gas has previously stated that the extension will be a key determinant in its goal of doubling production capacities.
The firm’s owner and mining mogul Anil Agarwal wants the firm to contribute 50 per cent to India’s domestic crude production, committing an investment of USD 5 billion to achieve production of 500,000 barrels of oil equivalent per day (boepd)
.The company produced less than 1,20,000 boepd in the third quarter ended December 31, 2022.Walker said the company has a medium-term target of producing 300,000 barrels of oil equivalent per day (boepd) or half of the country’s production.
The block, with 38 discoveries, till date, has total in place hydrocarbons of 5.9 billion barrels of oil equivalent (bboe). The block has cumulatively produced more than 700 million barrels of oil equivalent (mmboe) in the last decade. The contract extension will spur capex investment and encourage private players entering this critical sector, the company said.Vedanta believes it is eligible for an automatic extension of PSC for the Rajasthan (RJ) block on the same terms with effect from May 15, 2020.”The PSC extension should be on original terms as is the case worldover,” he said.
The government had in October 2018 agreed to extend by 10 years the contract for Barmer fields in Rajasthan after the expiry of the initial 25-year contract period on May 14, 2020.This extension was subject to the Vedanta group firm agreeing to raise the share of the government’s profit from oil and gas produced from the block by 10 per cent.
While Cairn protested against the additional payout and took the government to court, the extension was subsequently held up due to the government claiming additional profit petroleum after reallocating common costs between different fields in the block and disallowance of cost on a pipeline.
It sought Rs 2,870 crore for fiscal 2016-17, which was revised to Rs 3,613 crore for the period till March 2018. On April 28, 2022, an additional amount of Rs 2,038 crore was included. Vedanta has disputed this demand and initiated arbitration proceedings.
The company also had a dispute with its partner state-owned Oil and Natural Gas Corp (ONGC) over investments made in the block, which held up the computation of the government’s share of profit petroleum for fiscal years ended March 31, 2019, and March 31, 2020.ONGC holds a 30 per cent interest in the block while Cairn Oil & Gas is the operator with a 70 per cent stake.